Measuring standalone risk using realized historicaldata
Returns earned over a given time period are called realized returns. Historical data on realized returns is often used to estimate future results.
Analysts across companies use realized stock returns to estimate the risk of a stock.
Consider the case of Blue Llama Mining Inc. BLM:
Five years of realized returns for BLM are given in the following table. Remember:
While BLM was started years ago, its common stock has been publicly traded for the past years.
The returns on its equity are calculated as arithmetic returns.
The historical returns for BLM for to are:
Given the preceding data, the average realized return on BLMs stock is grad.
The preceding data series represents the population of BLMs historical returns. Based on this conclusion, the standard deviation of BLMs
historical returns is
If investors expect the average realized return from to on BLMs stock to continue into the future, its coefficient of variation CV will be
